Tag: innovation

Several months ago, a friend of mine introduced me to “Jobs To Be Done Theory” (JTBD) via the free work of an entrepreneur named Alan Klement called When Coffee and Kale Compete. The JTBD framework is part of a growing base of entrepreneurial knowledge in the innovation space with key similarities to things like disruptive innovation (The Innovator’s Dilemma by Christensen) and Design Thinking practice. These approaches to entrepreneurship focus on empathy as a methodology for understanding the psychological motivations and needs of a potential customer rather than on their demographic characteristics or profile data. Solutions are designed to help the customer make progress rather than being built around features or functions; in this way business people might be surprised to find out that “coffee” and “kale” can be competitors in helping a person make progress on “get my morning started right”, whereas in the traditional product design space an entrepreneur might be more focused on “how to build a better cup of coffee for 18-35 year old women.”

As Klement says in the introduction,

I want to help my customers evolve themselves. I shouldn’t study what customers want in a product. I need to study why customers want.

He describes a JTBD as consisting of three elements:

A job is your struggle to make a change for the better

The to be part denotes that overcoming that struggle is an evolutionary process; it happens over time

The change is done when you overcome that struggle and have changed for the better; there are things you can do now, that you couldn’t do before

These jobs originate inside people, not inside things. They have to do with motivations or states of mind, that is, they are psychic not material in nature. And there are many potential strategies for helping a person to accomplish that transition from one state to another, which is why it is possible to envision disruptive solutions that redefine the categories by which product or service competition occur.

Klement helpfully summarizes some principles of JTBD theory:

Customers don’t want your product or what it does; they want help making their lives better

People have Jobs; things don’t

Competition is defined in the minds of customers, and they use progress as their criteria

When customers start using a solution for a JTBD, they stop using something else

Producers, consumers, solutions and Jobs, should be thought of as parts of a system that work together to evolve markets

He works through a number of case studies to illustrate these principles. The methodology in each case study focuses on interviewing customers to get verbatims about how they reason about what problem they’re trying to solve and what solutions they’ve tried in the past and present. The emphasis is on revealed preference, determined by actions, rather than stated preference, determined by marketing surveys or hypothetical scenarios. By unpacking these statements rather than making assumptions, the entrepreneur can work to understand the mindset of the customer and how he sees himself struggling to make progress in a particular part of his life.

Klement later discusses two well-known case studies in the disruptive innovation literature, Kodak and Apple (iPhone vs. iPod), and reinterprets the story through the JTBD framework. With this, we see that Kodak’s business was annihilated not because they were complacent and didn’t see how technology would make their product irrelevant, but because their focus was on optimizing a particular solution (traditional film) for a particular JTBD rather than focusing on that JTBD itself and trying to ask what is the best way to help customers make progress on that in light of changing technology. In contrast, Apple took a very profitable product, the iPod, and thought about what kind of job it was fulfilling and what was a better way to do that job, the iPhone, rather than thinking about how to build a better iPod. This is because “no solution for a JTBD is permanent.”

One thing I found challenging in trying to digest this new framework was identifying the JTBD itself. Klement offers a few guidelines for deciding if you do NOT have a JTBD defined properly:

Does it describe an action?

Can you visualize somebody doing this?

Does it describe “how” or “what” and not why?

If the answer is yes, it is likely not a JTBD because JTBDs are emotional and represent psychic states. They are ways people experience their own existence and how they progress from one state of existence to another, they are not the thing that makes the progress themselves. Sometimes these JTBDs are exceedingly obvious. But a lot of the time, they’re subtle and can only be defined with confidence after a long, empathy-driven process of interviewing and conversing with customers to better understand what they think they’re trying to do. This is hard work! The JTBD framework is certainly not a quick or easy fix to the dilemma of how someone with an entrepreneurial bent can design great new products and services that meet peoples needs.

The book is chock full of case studies and deeper explanations of the basic components summarized above. I highlighted and underlined various meaningful passages that I won’t bother typing into these notes because they’d be too out of context to add clear meaning to a reader; besides, I read this book earlier this year and didn’t get to write up my notes until now, so I can’t even remember with some of them why I found them impactful at the time.

Alan Klement offers free consultation services and aspires to help people on a paid basis as well. I have spoken to him a number of times as I have read his book and attended the Design Thinking Bootcamp to share thoughts and ideas about the JTBD framework, especially as it applies to personal design challenges I am exploring in my own business. He informed me that he is working on a revised and re-organized 2nd edition which he plans to release soon. I will likely revisit the book then and consider publishing further notes and thoughts about the JTBD framework as I become more familiar with it and even work to use it in my own design challenges in the future.

I’ve been doing some thinking about the family as an institution, especially from the standpoints of ideal strategy for a person planning a family and as a social cure to the economic and cultural problems we witness today. I wanted a place to put my notes as I think through these things. This post, or at least the ideas, is by no means complete or comprehensive on the subject and it only captures some of my thinking as it stands right now.

The Family As Brand

A family is a brand and historically it may have been the first brand concept in existence. Families have names and reputations. They have traditions and certain values that are esteemed or deplored and transmitted through space and time across generations. The members of a family may specialize economically, socially or intellectually and develop a reputation for this specialization. The reputation of the family helps to reduce uncertainty for other individuals, families or institutions interacting with the family in knowing what to expect (of course, this reputation could become a weight around the neck of a genetic or otherwise outlier family member who doesn’t fit the mould).

Old families, especially noble or aristocratic families, took the concept of family branding in an explicit direction by adopting a logo, or symbol, of the house, by adopting familiars or animal associations which connoted the spirit or key characteristics of the house (ie, the lion as a symbol of courage or adventure), certain colors and even words or mottos which might today be thought of as the “brand promise”. Certain families which were especially grand came to be known not by their name, but by their property, or by an assumed name that better represented their stature and ambitions.

Rational Family Planning Strategy

Family planning can be done rationally and purposefully, or it can be done irrationally or at random. A rational, purposeful family plan starts with a goal for the family and the goal is associated with a long-term vision or plan. An irrational, at random family plan adopts an attitude of mystery and powerlessness in the face of fate and lets the chips fall where they may. The family isn’t going anywhere necessarily and no special effort is put in place to help direct the family and its energies as a result.

The family plan could be malevolent, but I will excuse that possibility here and focus on a beneficial arrangement. The family plan must include peaceful parenting as part of the framework for developing a long-term cooperative effort. What is peaceful parenting? One way to think of it is parenting without any behaviors you would find would be ridiculous, illegal or mean-spirited when used with an adult– no hitting or physical intimidation, no badmouthing or emotional manipulation, no threats or use of coercion of any kind. In positive terms, it is an approach based on negotiation, empathy, respect for differing needs, communication around means and ends and a willingness to hear and be heard. A peaceful parent models the values of the family plan so they can “be the change” they want to see in their child and in the world; they get buy-in and cooperation on the shared goals of the family plan by explaining their merits and value to all, rather than creating arbitrary strictures and enforcing them with overwhelming parental control.

I’ve outlined our parenting philosophy in an earlier post: to help our children achieve physical, emotional, intellectual and financial independence and to model the value of interdependence. A friend who also blogs about parenting is quick to warn of the “bird parent phenomenon”– prepare kids for life, then push them out of the nest and hope they can fly on their own. As she says, we’re not birds, we’re apes, and apes live in connected troops that are typically multi-generational. And this is true, too. That is the interdependence idea, with luck we will have provided compelling reasons for our children to remain close or even continue to live life together with us as they grow older and even have their own family. Pure independence would be bird parenting, which is not ideal but does contain the merit of giving our children what they need to soar on their own, should they choose to do so. What we definitely don’t want to do is develop a dependence model– bee parenting, where the children are mindless drones for the queen parent(s) and live to serve them and, if not them, than someone else, but never themselves.

What then is the role and purpose of education within this family framework? A great deal of it is still about classic learning such as reading, writing and arithmetic, the simple tools that people need to be able to think for themselves and be self-directed learners capable of researching ideas that interest them as deeply as they would like. Another part of it, missing from public education in this country in large part (and for good reason, at least as far as that system is concerned) is self-knowledge, thinking about things like “Who am I?” “What do I want? What is important to me?” and “What do I want to do with my life?” Ideally, this all happens within the meaningful context of the family, which means that an even bigger part of education is about the family, its values, its legacy and history and its assets and accumulated wealth and the opportunities that come with them. A family education involves “coming along to life”, learning what the family does and how it does it and why it does it to provide itself with the things it has. At age/development appropriate times, it will include “job shadowing” and then apprenticeship within family economic activities. It also involves a specific approach for parents and other elders or existing family members in how they structure their time and responsibilities so they can be around children and share with them about what is going on!

Assuming a family is functional and manages to acquire assets over time through low time preference and thrift, the succeeding generations of the family will have to contend with a growing inheritance. This means they’ll have to learn specific habits and ways of life and acquire certain knowledge and responsibilities that those before them didn’t need and had no reason to think about. This means the family needs a meta-process for contending with the inheritance and learning to manage it through increasing size and complexity, especially as the potential number of inheritors grows over time as well! Children in each new generation of the family will need to receive instruction, from a very young age, about the family assets, how to grow them and how to manage them as well as ways to benefit from and enjoy their ownership.

And assets must be managed and controlled by someone, so while the children are immature and learning the ropes it is up to the adults to take care of these things. But in time, the adults become the elders, the children become the adults and the next generation of children arrives. A rational family plan accepts this cycle as a necessary part of family life and makes arrangements ahead of time to effect smooth transitions in the ownership and control of family assets from generation to generation. I’m not talking about tax planning here (which I believe in some ways is a futile exercise with no free lunch), but rather the idea of allowing for a financially secure retirement for the elders, complete with a transition in their identity and personal activities which is not disruptive to their enjoyment and fulfillment in life, combined with a “rising” of the next generation to true adult responsibility in having primary control and influence over the next stage in the family’s wealth plan. This next generation might continue the existing growth strategy, or transform the assets by selling them and then buying into a new concern (or starting one up)– these decisions are context dependent.

Here are some other long-term family planning considerations: marriage, genetic optimization, nutrition and fitness, generation of intellectual/human capital

Role of the Family As An Economic Unit

If we think of a family as an economic unit, we can draw parallels in the “life cycle” of the family economically that is similar to that of business organizations. Business organizations experience predictable stages of growth and decline– start-up, high growth phase, slow growth phase, plateau and decline (or, for the more agile, transformative innovation, which is the transition between decline and start-up that skips the end point of death). A family’s economic legacy has similar stages– pioneering, empire building, consolidation and reinvention. The pioneers are the early ancestors who first take a gamble on an interesting economic opportunity with long-run potential and begin accumulating assets. The next generation, if properly instructed, can take the seeds of this early effort and expand it rapidly as they build out an empire and come to dominate an industry or economic niche. The subsequent generation inherits substantial wealth and also substantial risk, namely, has the empire-building generation been successful in instructing them in the ways and means of managing this empire so that they’re up to the task? There usually is not a lot of low-hanging fruit available to continue the growth strategy, the name of the game at this point is consolidating gains and holding on to them. By the fourth generation, risk must be transformed. The growth that can be had, has been had, and the horizon is sloping downward, perhaps rapidly. It’s time for the family to make the hard decision of divesting themselves from the economic circumstances that initially founded their fortune to “go mobile” and pioneer once more by transforming their assets into a different industry or start-up venture. The difference this time is that these pioneers have three to four generations of know-how and human capital behind them that their earlier ancestors did not, which will hopefully prove to be an impressive competitive advantage.

The key concept for the family to master at each stage and through each generation is the discipline of accumulating savings by living below one’s means. For the pioneers, this is obvious, as there is no back-up plan and no rainy day fund save what they can provide for themselves, and being a new risk they must provide their own capital to grow as they will have trouble convincing third parties to participate. For the empire builders, a new risk presents itself, that of the temptation to live flashily and show off, but being so proximate to the pioneers it is likely they will have a deep and fond respect for the frugal habits of their forebears. In the consolidation phase, savings and capital seem so hyperabundant it can be difficult for this generation to understand the meaning and importance of continuing to save. Any time the family entity has required capital to operate, there has been plenty, so why worry too much about this? The innovative generation must be intimately aware of the importance of safeguarding capital and the productive value of its assets, as they won’t be worth anything when they hope to sell them if they’re not careful, and they learn a new appreciation for cash and the optionality it allows in planning family economic strategy into the future.

Within this inter-generational framework of family asset management we can see a unique opportunity for family members to participate as meaningful apprenticeships as they transition from dependent children to independent or interdependent adults contributing to the growth of family assets. The need or desire to gain formal educations and interview for skill-building career opportunities in outside organizations is minimized; the family can be not only a high-quality hiring pool for workers and managers in the family business, but also a source of that training opportunity.

And over time, the close alignment of multiple generations of the family with a particular enterprise and its needed specializations in thinking and experience mean that the business will leave its mark on the family and vice versa. Just as the family might develop a reputation for certain virtues such as “truth” or “loyalty” or “consistency”, it might also develop a reputation for industrial or professional excellence, “the best factory managers there are”, “strategic thinkers without comparison”, “the most knowledgeable people in the food service business”. Reciprocally, the industry might leave an imprint on the family name, “When you see ‘Jones’ on the building, you know they’re developing quality inside.”

Some fear to admit this, but all businesses are like families. In fact, many careerists expect that in giving to their company, their company will give back to them, much like a family, by being concerned for their well-being, providing benefits if they get sick or fall on hard times, and by allowing them interesting new opportunities as they gain in experience and skill over time. The difference is that some businesses pretend at being a family while remaining “faceless corporations” with fairly anonymous employees and rotating, mercenary managers who run the company, while other businesses really are families because they’re owned and operated (and in part, staffed) by them. Many are not fortunate enough to have a family in business, so they’re forced to go looking for another “family” to join when their career starts. Wouldn’t it be better if you could save yourself the trouble and get working where your family is?

In fact, a family running a high-quality, growing organization is going to attract to it just those kinds of people who really want a “home” and a family to be a part of and this is where the idea of a lieutenant, or adopted family member, comes into play. With trust and special contribution, business families might find some people in their organizations growing so close that they come to be seen as junior-family members– they may not be blood, but the level of concern for their comfort and well-being is nearly identical. There are some real benefits to be had, especially with regards to counteracting the mercenary mindset. If a person can achieve junior-family member status, they have a strong incentive to align their actions and conceptions of well-being with that of the family in a mutually beneficial arrangement.

This is probably one of the primary reasons why corporate governance would be expected to be superior under family owner-operators versus a diversified base of small shareholders with an elected board of representatives to oversee professional managers. There are deep-rooted agency problems with the traditional public company governance model, where shareholders don’t have a meaningful stake in the company to have any control or influence over its management, nor real concern for its long-run prospects. It’s always easier to sell and pass the problem off to someone else than to take an organized stand, similar to the problems of democratic political systems. The boards become captured by the managers, just like governments become captured by special interests. The end result is chaos, short-termism and relative instability and insecurity for all involved. Family-based owner-operator management can remedy all of this: concentrated ownership creates unity of strategic vision and needs, especially within the framework of multi-generational planning; the unification of owner demands and management representation ensure the vision will be clearly articulated and enforced, with severe consequences for managers who go rogue; and the lieutenant network or junior-family member approach increases the likelihood that managers can better align their sense of well-being with the family’s and by extension, the company’s.

Revival of the Family as an Alternative to Failed State Institutions

It’s obvious to any objective observer that the modern state has failed in virtually every arena it is presently engaged. Of particular concern to those without security are the failures of the modern state in providing welfare and what is termed the “social safety net” to those who are needy. The revival of the family as an alternative to these failed institutions is not only a perfect answer, it’s the only answer. The State can not provide individuals with comfort and security without first taking it from other individuals, particularly individuals composed as families (for example, the inheritance tax). The charity which the State might provide is derived from the family in the first place. Family should care for its own and must care for its own instead of placing this burden upon “society” with all the terrible social engineering temptations that come with it once politicians get involved in these schemes. And to be in a position to provide these welfare benefits to its members, families must rediscover the art of purposeful planning of their activities and legacies.

We hear of scions of old who were the institutional members of their communities: the Carnegies, the Rockefellers, the Mellons and so on. Families must reclaim this institutional identity and seek to be the pillars of their own communities. They must build the resources and create the organizations needed to address the challenges specific to the places they live. Families should provide education to their members and the people in their communities, not the State. When there is a social problem, families should get involved to address it, rather than calling for a new law or government program which inevitably they will finance but they will not control. Families, as owners of land and other local resources, should determine land use patterns, not government bureaucracies. And families should be developing the skills and experiences amongst their members necessary to build and develop local businesses and economic entities, rather than raising their children up just to send them away to join somebody else’s. Families can even be in the business of arbitration and peacefully resolving disputes which might arise in the community. This is another way in which reputations and specializations within families can be instrumental in adding value to communities.

Avoiding Common Family Problems

In the future, it will be useful to explore some common social risks associated with families and family management of social institutions, such as:

And it ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.

The original Nintendo started out as a manufacturer of playing cards and other toys, games and trinkets near the end of the Shogunate era in Japan, but the modern company we know today which gave the world the Nintendo Entertainment System, the Game Boy, the Wii and characters like Mario & Luigi and Pokemon, was primarily shaped by four men: former president Hiroshi Yamauchi, lead designer Gunpei Yokoi, the firm’s first software designer Shigeru Miyamoto and the first “outside hire” executive and former software developer, Satoru Iwata.

A family member of the then privately-held Nintendo, Yamauchi took the presidency in 1949 when his grandfather passed away. He tried adding a number of different businesses (taxis, foodstuffs, copiers) to Nintendo in true conglomerate fashion, managing in one 12 year period to grow sales by a factor of 27 and operating profits by a factor of 37.

But his most influential mark on Nintendo’s business came with his fortuitous hiring of Gunpei Yokoi, an engineer, who would head up hardware development for Nintendo’s game division. It was this strategic decision to concentrate Nintendo’s efforts on game development that would lead to the modern purveyor of hardware and software known around the world today.

Hardware engineer Gunpei Yokoi is not a well-known name outside the world of hardcore Nintendo fandom, which is not altogether surprising because most Nintendo fans alive today were not users of some of his first toy gadgets such as the “Love Detector” and the “Game & Watch” handheld mini-game consoles. On the other hand, it’s a shock that the man’s reputation is not larger than it is because he essentially single-handedly created the company’s hardware development philosophy in the 1960s which has remained with it today and continues to influence Nintendo’s strategic vision within the video game industry.

That hardware philosophy was summed up by Nintendo’s first head of its hardware development section as “Lateral thinking with seasoned technology”. In concrete terms, it is the idea of using widely available, off-the-shelf technology that is unrelated to gaming in new and exciting ways of play, for example:

Yokoi’s “Love Detector” game, which used simple circuitry and electrical sensors to create an instrument that could supposedly detect romantic chemistry between two users when they held hands and held the machine

A blaster rifle toy that used common light-sensing equipment to deliver accuracy readings of the users target shots to the rifle, registering hits and points

More recently, the Nintendo “Wiimote” concept, which was simply the idea of repurposing the common household TV remote into a tool for play

Yokoi’s lasting impact on the hardware (and software) philosophy at Nintendo is best captured by current president Satoru Iwata who once said,

It’s not a matter of whether or not the tech is cutting egde, but whether or not people think it’s fun

Similarly, this focus on repurposing existing technology for fun rather than investing in brand new technology helps to explain why many of Nintendo’s systems have been knocked for their not-so-hardcore hardware (think non-HD Wii vs. HD-enabled Sony PS3 and Microsoft Xbox 360) but nonetheless became massive consumer hits– the focus was on fun, not flash.

The Wii particularly was the response to the failure of two systems which preceded it (Gamecube and N64), which were extremely technologically advanced for their era and which departed as swiftly from Yokoi’s philosophy as they posed monumental development challenges for software developers due to their complex, proprietary nature. Instead of creating yet another whizbang console, Nintendo decided that if Wii’s costs were kept down and developers were free to focus on things like a new, intuitive controller and built-in connectivity functions, fun and market success would follow.

Essentially, the game hardware is a commodity with zero barriers to entry. Anyone can have the latest, greatest technology if they’re willing to pay for it. There is no way to establish a competitive advantage on the basis for hardware sophistication alone. It must come from design, or, as Yokoi put it,

In videogames, these is always an easy way out if you don’t have any good ideas. That’s what the CPU competition and color competition are about

Nintendo’s two leading lights: Satoru Iwata and Shigeru Miyamoto

Rounding out the Fantastic Four are Satoru Iwata, the company’s current president, and Shigeru Miyamoto, the star software developer.

Iwata came from relative privilege and studied computer programming in school. He had a passion for making and playing games from an early age. He joined a software developer, HAL Laboratory, early on. He successfully turned around the flagging HAL Lab before it was acquired by Nintendo.

Meanwhile, Miyamoto first came to fame through development of his Donkey Kong arcade game, which introduced the characters Donkey Kong and Mario and which was originally based off of Popeye until the IP could not be acquired for licensing. As a small boy he spent hours running around the hills, forests and mountains outside his home, which inspired many of his later game creations such as Pikmin, Animal Crossing, The Legend of Zelda, etc. He was the first designer Nintendo had ever hired. Miyamoto often utilizes his “Wife-o-meter” to help him understand how to make games that are more broadly appealing.

Miyamoto’s design ethic is best synthesized as populist-perfectionist:

When creating a game, Miyamoto will occasionally find employees from, say, general affairs who aren’t gamers and put a controller in their hands, looking over their shoulder and watching them play without saying anything

He creates game characters, game designs and immersive environments that appeal to everyone, not just the archetypical “hardcore gamer.” But this desire to serve a mass, unsophisticated audience does not mean that Miyamoto considers quality as an afterthought. Miyamoto will “polish [an idea] for years, if he has to, until it satisfies him” and “shelving an idea does not mean throwing it away. Those huge storehouses are full of precious treasure that will someday see the light of day.”

This is part of the value of Nintendo– they have many unrealized ideas waiting to be turned into hardware and games and the only thing preventing them from seeing the light of day is someone like Miyamoto who wants to make sure that when they eventually emerge into the light, they don’t just shine but sparkle.

And this thinking carries over to the company’s hardware efforts, as well. According to a lead engineer, the DS

had to work consistently after being dropped ten times from a height of 1.5 meters, higher than an adult’s breast pocket

Nintendo is “obsessed about the durability of their systems due to an overriding fear that a customer who gets upset over a broken system might never give them another chance.”

“Nintendo-ness”: how Nintendo competes by not competing

In 1999, then-president Yamauchi saw a crisis brewing for video game developers:

If we continue to pursue this kind of large-scale software development, costs will pile up and it will no longer be a viable business. The true nature of the videogame business is developing new kinds of fun and constantly working to achieve perfection

The solution was to adhere ever more closely to “Nintendo-ness”. Nintendo picks people with a “software orientation.”

“Nintendo-ness” is the company’s DNA, once someone has grasped Nintendo-ness, it is rare for them to leave the company. That tendency protects and strengthens the company’s lineage and makes employees feel at home

Manufacturing companies create hardware which are daily necessities, which compete based on being better, cheaper products. Nintendo is in an industry of fun and games, software, where polished content is the goal. Compare this to rival Sony, where hardware specs are key and the software is to follow.

According to Iwata,

Do something different from the other guy is deeply engrained in our DNA

Similarly, Nintendo-ness means delighting customers through creation of new experiences because

if you’re always following a mission statement, your customers are going to get bored with you

This way of thinking goes back to Hiroshi Yamauchi, president of Nintendo for 50 years, according to Iwata:

He couldn’t stand making the same kind of toy the other guy was making, so whatever you showed him, you knew he was going to ask, ‘How is this different from what everybody else is doing?’

For some reason, Nintendo observers and critics don’t get this– why isn’t the company doing what everyone else is doing? Why are they making a console with a TV remote instead of HD graphics (the Wii)?

To Nintendo, the risk is in not trying these things and trying to do what everyone else does. Iwata sums it up nicely:

Creators only improve themselves by taking risks

Of course, not all risks are worth taking. Iwata as a representative of Nintendo’s strategic mind makes it clear that the company is keenly aware of its strategic and financial risks:

The things Nintendo does should be limited to the areas where we can display our greatest strengths. It’s because we’re good at throwing things away that we can fight these large battles using so few people. We can’t afford to diversify. We have overwhelmingly more ideas than we have people to implement them

For example, Nintendo considers the manufacturing of game consoles to be outside its purview, a “fabless” company.

Then there’s the reason for the huge amount of cash on the balance sheet:

The game platform business runs on momentum. When you fail, you can take serious damage. The risks are very high. And in that domain, Nintendo is making products that are totally unprecedented. Nobody can guarantee they won’t fail. One big failure and boom– you’re out two hundred, three hundred billion yen. In a business where a single flop can bankrupt you, you don’t want to be set up like that… To be completely honest, I don’t think that even now we have enough [savings]… That’s why IBM, or NEC, or any number of other companies are willing to go along with us. We’d never be able to do what we do without being cash-rich

That being said, Iwata has not been shy about his policy toward dividends and acquisitions. He has stated that assuming Nintendo’s savings continue to accumulate, passing 1.5T or 2T yen, a large merger or acquisition may become a possibility. Otherwise, excess capital will be distributed as dividends.

The next level

Nintendo’s philosophy is to avoid competition. It sees the hardware arms race as an irrelevant dead-end. The key is to create new ways to interact with game consoles and software that keeps game players on their toes and brings smiles to their faces. According to Iwata,

We’d like to avoid having players think they’ve gotten a game completely figured out

Thus, for Nintendo the next level logically is integration of User-Generated Content into their software environments, which would have inexhaustible longevity. First they sought to increase the gaming population, now they’re looking at how to increase the game-creating population.

Our goal is always to make our customers glad. We’re a manufacturer of smiles

This is what the company calls “amusement fundamentalism” and it’s what sets them apart from their perceived competition, especially comparisons or criticisms aimed at the company in terms of how it stacks up against a company like Apple. To Iwata, this just doesn’t make sense:

“Playlist” driven lesson plan; students work through pre-assigned steps on tasks of interest

Surveillance; students are recorded with video and audio for later playback and analysis by teachers

Big data; used to analyze student progress and adapt lesson plan to strengths and weaknesses

Private tuition, approx. $30,000/yr

According to the editor’s tag on the article, AltSchool is an example of “Silicon Valley disrupts education.” In the disruption literature there is the idea of disruptive and sustaining technologies– disruptive technologies create a paradigm-shift in the strategic world upon which the industry in question competes, while sustaining technologies simply allow for more efficient continuation of the existing competitive dynamic. Better horse breeding practices are an example of sustaining technology in the era of the horse and buggy, while the internal combustion automobile is an example of a disruptive technology in personal transportation.

If AltSchool is disruptive technology, then the questions are:

What is the primary strategic principle for mainstream education?

How does AltSchool represent a paradigm-shift?

It’s perhaps difficult to say exactly what the principle of mainstream education is. There are many interest groups who vie for influence over the system so it is by no means a monolithic group. That being said, there is perhaps a cohesiveness of interests: provide jobs and economic resources for “educators” and administrators (including the politicians who are the ultimate stewards of the system) while creating a student body that will be cooperative with the political system around it and willfully integrate into the various economic relationships that sustain it. “Question everything” this is not.

The AltSchool gives meek lip service to the idea of an individual-oriented learning experience, but upon further investigation it seems that this is not about making the student the master of his education, but making the education a more subtle component of the student’s social indoctrination.

Ventilla [the founder of the company] also wanted students to focus on developing skills that would be useful in the workplace of the future, rather than forcing them to acquire knowledge deemed important by historical precedent. “Kids should be spending less time practicing calculating by hand today than fifty years ago, because today everyone walks around with a calculator,” Ventilla told me. “That doesn’t mean you shouldn’t be able to do math—I shouldn’t have to whip out my phone to figure out if someone gave me the correct change. But you should shift the emphasis to what is relatively easier, or what is relatively more important.”

While there isn’t necessarily anything blame-worthy in being mindful of conditions in the workplace which students might one day be interacting with, it also isn’t exactly revolutionary to incorporate job-worthiness into one’s educational philosophy. The “workplace of the future” is an extrapolation of the “workplace of the present” into future periods.

In San Jose, students’ scores on annual state tests were made available only after the end of the school year. At AltSchool, Seyfert could keep tabs on her students’ daily, if not hourly, progress. Every task card on a student’s playlist is tagged to denote not just academic skills, like math and literacy, but also social and emotional skills.

What is the value of all of these statistics? If you are teaching to a standard (ie, you have an end goal in mind of what your student should “look like” when their education is “complete”), then being able to measure progress toward that standard would be instrumental. The application of technology to this problem of measurement might introduce some efficiencies or even capabilities that are impossible without it. But then, this wouldn’t be a disruptive innovation but rather a sustaining innovation.

If your methodology is centered around the development of the individuality of the student himself, then the best such statistics can provide is a description of strengths and weaknesses. There would be nothing actionable as there would be no specific goal. Suzie is good at math. Jerry is good at reading. But what of it? And even then, these descriptions would only be valuable to compare Suzie and Jerry to others, but what value are such comparisons to the individual being compared? He cares not for it.

Like other AltSchool teachers, Seyfert was drawn to the startup because of its ambition to make systemic change. Two or three times a week, she told me, she gives colleagues feedback about the school’s digital tools. The Learner Profile, Stream app, and other tools are only about a year old, and AltSchool’s personalization still requires considerable human intervention. Software is updated every day. Carolyn Wilson, AltSchool’s director of education, told me, “We encourage staff members to express their pain points, step up with their ideas, take a risk, fail forward, and fail fast, because we know we are going to iterate quickly. Other schools tend to move in geologic time.” (Ventilla may question the utility of foreign-language acquisition, but fluency in the jargon of Silicon Valley—English 2.0—is required at AltSchool.)

The obsession of the school seems to be in building excellent quantitative measurement tools. These pieces of software can be updated and tested rapidly. But the educational principles themselves produce effects which are long in both maturation and duration. We can’t be sure of their results until many years have passed, if even then, and they’re most easily tested through logical inquiry, not mathematical interpretation. As human nature and cognitive capability are not improving any faster than iteratively through “geologic time”, it’s unclear what value these rapid upgrades to the software provide to the improvement of the philosophic principles of education that have supposedly been disrupted by AltSchool.

There was some humorous contrary evidence:

The previous day, Otto said, a guest teacher had come in to lead several students in a 3-D-modelling project, using a Web site called Tinkercad. “We built little models online—some people built phone cases, or little towers, or yo-yos,” Otto said. “I built a toilet, because I thought it would be fun. It has lots of different components—you have the base, you have the seat, you have the back.” He clicked to the site and pulled up his model. “I was looking around at pictures of toilets online,” he said. “I think I want to make it a bit more shaped for your back. I also want really sanitary toilets. And I want to make it really comfy. I’m quite bony, and I’m small, and if they don’t have a cushion they hurt.” Eventually, Otto said, he planned to 3-D print his prototype: a model toilet, fashioned to his personal specifications and preferences.

I really enjoyed this comment and I am glad the journalist captured it. First, it suggests that maybe the AltSchool is creating some spaces for the individual student to explore their interests, deeply. Second, Otto comes from a financially successful family whose parents are accomplished corporate types. It seems that, given the freedom to pursue his own interests, he can think of nothing better than building a comfortable toilet. That must give mainstream educators (and maybe even his ambitious parents) the chills!

If you can pull your own preferences out of your head for a moment and just look at this boy’s effort from his own perspective, though, isn’t it glorious?

The point of the hackathon was to sketch out in code potential solutions to “robot tasks”—routine aspects of a teacher’s job that don’t require teaching skills. Kimberly Johnson, the head of product success and training, addressed the team. “Basically, what we have told teachers is we have hired you for your creative teacher brains, and anytime you are doing something that doesn’t require your creative teacher brain that a computer could be doing as well as or better than you, then a computer should do it,” Johnson said.

Since the previous hackathon, three months earlier, teachers at AltSchool had filed more than a hundred digital “tickets” to Johnson, indicating how AltSchool software might be improved. Some teachers had asked for a more streamlined way to input data. Johnson acknowledged, “It is a lot of work to go into each card and click the learning objective and click the score and click ‘save.’ It’s just four or five clicks, but it adds up.” The teachers also wanted to enter assessment scores to groups of kids at once. “If you say, I want to give all of these kids threes, and all of these kids fours, there must be an easy way to do that,” Johnson said. “I don’t know what it would look like, but you could probably hack something together.”

Again, the emphasis on data technology over teaching philosophy. Now, it sounds like the school is trying to free up the teachers to focus on teaching by improving their technology interface. But the question begged is, “What makes the technology interface so central to their teaching philosophy?” This comes back to the question of disruptive versus sustaining technology. How is the student served by all the assessments? Life is its own assessment.

But AltSchool’s philosophy of education is also essentially utilitarian, even as it celebrates the individuality, autonomy, and creativity of its students. It holds that children should be prepared for the workplace of the future—and that the workplace of the future will demand individuality, creativity, collaboration, and critical thinking.

We turn now to that great social philosopher, Ludwig von Mises, who said of genius and the creation thereof in his “Human Action“:

The genius does not deliver to order. Men cannot improve the natural and social conditions which bring about the creator and his creation. It is impossible to rear geniuses by eugenics, to train them by schooling, or to organize their activities. But, of course, one can organize society in such a way that no room is left for pioneers and their path-breaking.

Now here are two very different philosophies. At AltSchool, “individuality” and creativity are being taught as part of the lesson plan and the methodology of the school in service of the demands of a future workplace so envisioned. For Mises, the creative individual is something natural, inexplicable and uncontrollable and he is in service to himself first and foremost.

I think it is Mises’s ideas that are disruptive here.

AltSchool’s perspective does not necessarily require abandoning texts that have long been considered central to a humanist education, but it does mean approaching them anew. One middle-school class undertook a lengthy study of the Iliad by focussing on the theme of “rage” and designing a spreadsheet that logged instances of it. They then used data-visualization techniques to show their findings, and wrote persuasive essays based on their results. Afterward, their teacher, James Earle, wrote, “Analyzing a piece of literature this way turns the work into a piece of robust data that can be understood quantitatively, in addition to allowing a qualitative reading.”

But what is the value of this new understanding? What does it add that is new and different? Yes you can do this, but what thinking informs the should?

Mediratta [vice-president of product] envisaged a time when AltSchool technology would get “into the sci-fi realm.” What insights might be drawn from aggregated data culled from video and audio? He spoke of the video moments that teachers were bookmarking. “The next useful thing would be for us to analyze all the things that are bookmarked, and to draw inferences,” Mediratta said. “Like, bookmarks seem to happen when the classroom is noisy. So let’s generate a few other interesting moments that the teacher might want to look at—say, a moment when the classroom was full of kids but was dead quiet. What was happening there? Is this good? Is this bad? Or you could look at a moment when it was absolutely chaotic—but maybe that is what the activity called for. So we can start applying machine learning to this data to start driving inferences. Maybe what we should be doing is detecting when the classroom gets noisy, and then we could have the head of the school, who is also an educator, stop by your classroom and participate and help.”

The meta-philosophy of modern education is control, the schooling agenda is a by-product of the aim to control others. The desire to control the schooling environment seems to be what is behind the focus on applying technology to surveil and measure the students and their activities.

AltSchool is not disrupting anything as far as I can see. From my understanding of what education is and what education isn’t, I don’t see a place like AltSchool meeting my needs, but that does not mean it won’t be successful in terms of the paradigm of mainstream education, within which I believe it is situated.

Although Nintendo missed its sales targets for the Nintendo 3DS platform, they still sold enough of the systems and its games to give credence to the argument that Nintendo’s business model (independent hardware manufacturer plus proprietary franchise software development) has not been killed and buried in a ditch by the transition to mobile, freemium, changing lifestyles, etc.

What is missing in most discussions of Nintendo’s fortunes, however, is the following fact: what has appeared to die is the profitability of Nintendo’s business model.

That is to say, Nintendo still has a market for its proprietary business model, but going forward it appears to be a marginally profitable effort. However, a business with marginal profitability could have strategic (ie, competitive, brand) value, which is why Nintendo may have decided to keep their hat in that ring.

But it is clear now that Nintendo is a box of cash, with potentially valuable franchise IP sitting on top of it, pursuing a “blue ocean” market.

In other words, Nintendo is not presently an operating company, but a development company that might transform back into an operating company at a later date.

Therefore, the analysis of the value of Nintendo now and in the future hinges on the answers to several questions:

How much, and at what rate, will Nintendo Development Company (NDC) burn through their cash stockpile before finding a new operating business? And will they burn through all of it?

What potential valuable uses do their existing IP have that they are not yet considering them for?

Will NDC’s existing franchise IP have value in their new, blue ocean market?

How valuable will the new, blue ocean market be relative to the past size and scope of the company, its present market cap, size of present cash hoard, etc.? (That is, how big is the potential future market?)

Will they abandon their previous markets once they’ve secured a new market?

Take a movie like Madagascar 3. About 150 million people pay us about $10 from beginning to end on the movie. Some people go to the movie theater, some buy a DVD, some get it from HBO, some from Netflix, some from Redbox. But you sort of take it through the whole course, whole life of the movie, (it) is about 150 million people, and it’s about $10, on an average.

Ten years from now, two and a half billion people are going to pay us, on average, $1.50. Literally hundreds and hundreds and hundreds of millions of people for 65 cents will watch it on a smartphone in all parts of the world. Then you’ll pay $2 to watch it on your iPad. You’ll pay $5 to watch it on a big high-def flat-screen TV, and you’ll pay $15 to watch it in a premium movie theater, $25 to watch it in IMAX and $10 billion to watch it in Richard Branson’s spaceship somewhere.

The one thing that the movie business has done, which is very different than music, is we have always made our product available to people in different shapes, different forms, different prices. You can own it, you can rent it, you can borrow it. Please don’t steal it. Digital will move us to a mass, mass, mass market, radically different from what we have today. All the stakeholders will change in terms of what their stakes are.